Aid For Trade Perspectives from Multilateral Organisations: The International Monetary Fund

1. Aid For TradePerspectives from Multilateral Organisations: The International Monetary Fund Robert Burgess IMF Deputy Resident Representative, South Africa Pretoria, August 23-24, 2006

2. What does trade have to do with the IMF? • Its part of our mandate: “to facilitate the expansion and balanced growth of world trade” (Article I) • It relates to our core macroeconomic agenda. Trade: - has fiscal and exchange rate impacts - influences growth and stability - affects financial stability (services)

3. What does the IMF do on trade issues? • Policy advice and surveillance • Program work, including financial support for adjustment • Research • Technical assistance • Outreach, communication, and advocacy (including for Doha) • Cooperates with other institutions, especially World Bank and WTO

4. The Rationale for Aid for Trade • Many poor countries face supply-side and other constraints to participating in global markets • Helping developing countries to take advantage of existing trade opportunities to support growth worthwhile in its own right • Trade reform is a global public good (i.e. benefits not fully captured by reformer) and thus under-provided • Aid for trade can complement trade reform and global market opening • Absorptive constraints matter (Paris Declaration) • But aid for trade can help manage scaled up aid inflows (e.g. lower tariffs / transactions costs can mitigate impact of large aid inflows on exchange rates)

5. How does Doha change things? • A significant opportunity foregone (boost world economy, strengthen its institutions, raise growth prospects of poorer countries) • Suspension does not imply death of Doha Development Agenda. • Specific implications for aid for trade agenda unclear. But aid for trade outside scope of single undertaking of Doha Round. Broad agreement that it is a development priority. • IMF view: no backsliding on progress already made; encourage donors to follow through on commitments of aid for trade • Risks in standing still. Bilateral agreements can be helpful or harmful (trade diversion, confusion, strains capacity). Excessive proliferation of bilateral agreements can undermine multilateral system itself.

6. Our Current Remit on Aid for Trade IMF / World Bank Spring Meeting 2006 urged: Aid for Trade assistance firmly grounded in national development strategies and full use of existing and enhanced mechanisms for trade-related technical assistance International Monetary and Financial Committee Communiqué, April 2006

7. What does this mean in practice? Or, what counts as Aid for Trade? • Broadly, activities identified as trade-related development priorities in national development strategies. More specifically, support for: • Trade Policy and Regulation (e.g. policy formulation, implementation of agreements) • Trade Development (e.g. promotion, support services, standards) • Supply-Side Issues (e.g. infrastructure, finance, investment climate) • Trade-Related Adjustment (e.g. preference erosion, fiscal revenue) • None of this is new! Purpose of aid for trade process is to give developing countries tools to determine their own priorities; and to draw increased funding into these areas

8. IMF Aid for Trade Initiatives – Some ExamplesI. Financial Support • Trade Integration Mechanism established in 2004 to help countries meet adjustment costs of multilateral trade liberalization • Used by 3 countries: Bangladesh, Dominican Republic, and Madagascar (all textile producers). Up to $300 million available. • Additional cases if Doha / EU / US reforms lower MFN barriers for preference sensitive products (e.g. sugar, bananas) • Other Fund programs continue to support adjustment in the context of domestic trade reforms.

9. IMF Aid for Trade Initiatives – Some ExamplesII. Diagnostic Support • Analysis of potential fiscal impact of Doha Round. Small number of developing countries would lose more than 1 percent of GDP of revenue. • IMF Technical Assistance can then help design offsetting revenue measures to cope with these losses • Similar studies on preference erosion: impact is moderate for most but substantial for a few.

10. IMF study on fiscal impact of Doha

11. IMF Study on Impact of Preference erosion • Only a few countries are expected to suffer significant export losses: Island economies • Vulnerability concentrated in handful of products (sugar, bananas, textiles) • Bulk of preference erosion due to EU sugar and banana reforms, not Doha

12. IMF Aid for Trade Initiatives – Some ExamplesIII. Regional Policy Discussions • Results of IMF study of preference erosion discussed with 10 Caribbean countries in Spring 2005. Discussions on adjustment and financing needs will now follow at regional and country level. • Policy discussions with Algeria, Morocco, Tunisia, focusing on trade facilitation, took place in Algiers in November 2005. Led to work program including, e.g. harmonizing trade regulations, eliminating trade distortions, simplifying and reducing tariffs, reforming customs procedures

13. IMF Aid for Trade Initiatives – Some ExamplesIV. Country Policy Discussions • Mauritius – hit by preference erosion (textiles, sugar), high oil prices, low growth • Middle income country – ineligible for Integrated Framework (diagnostic studies and coordinates donors) • IMF and World Bank are supporting the country’s adjustment program. IMF focusing on budgetary measures, strengthening social safety net, and financial sector policies (diversification into services).

14. IMF Aid for Trade Initiatives – Some ExamplesV. Technical Assistance / Capacity Building • Redesign of tax systems in face of tariff revenue loss • Increased focus on trade facilitation in our assistance on customs administration reform. Joint World Bank-IMF-World Customs Organization program. VI. Working with Others • WTO Task Forces on Integrated Framework and Aid for Trade. IMF is part of this process • Supporting World Bank in looking at how best to adress cross-country and regional aid for trade needs